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Dept of Labor Issues Final Rule on FLSA Overtime Provisions

Thursday, May 19, 2016 6:45 AM

President Obama signs a Presidential Memorandum directing the Department of Labor to update the regulations defining which white-collar workers are protected by the FLSA's minimum wage and overtime standards.

The Department of Labor has issued its final rule regarding the Fair Labor Standards Act overtime provisions. It is estimated that the rule will automatically extend overtime pay protections to more than 4 million workers within the first year of implementation.

Effective December 1, 2016, credit unions must comply with the new rule regarding which employees qualify for an exemption from the FLSA overtime requirements. In short, fewer employees will qualify for exemptions due to their current salary. In other words, some credit unions may have to begin paying overtime to employees who they currently consider exempt (or they can adjust their salary above the threshold to maintain the exemption).

This rule is anticipated to impact many small credit unions, but all credit unions will need to review their pay structures to determine whether or not adjustments must be made.

Key Provisions of the Final Rule

The Final Rule focuses primarily on updating the salary and compensation levels needed for Executive, Administrative, and Professional workers to be exempt. Specifically, the Final Rule:

Sets the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South ($913 per week; $47,476 annually for a full-year worker);

Sets the total annual compensation requirement for highly compensated employees (HCE) subject to a minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004); and

Establishes a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles and to ensure that they continue to provide useful and effective tests for exemption.

Additionally, the Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.